BEIJING—China’s government wants
Alibaba Group Holding Ltd.
BABA -2.19%
and other Chinese tech giants listed abroad to trade on the nation’s stock markets. Now regulators are trying to figure out how to do that without seeing those shares fall too low or soar too high.

Officials at the country’s securities regulator and its two main stock exchanges are racing to issue China’s first class of securities known as depositary receipts and are facing pressure to get the details right, according to people familiar with the deliberations. The receipts are a type of security offered on a local stock exchange by a company listed in another country.

Chinese leaders see a successful launch as key to reversing a trend of nearly two decades that saw marquee tech companies list overseas where financing was more reliable. These companies are now some of the world’s most valuable. Bringing them home will help deepen China’s stock markets and boost its competition with the U.S. over future technologies.

“It’s in China’s national interest to give more of a Chinese identity to these firms,” says Lyndon Chao, head of equities at industry group Asia Securities Industry Financial Markets Association.

Among tricky issues the officials will face are those regarding timing and valuation, the people familiar said. Many of the Chinese tech companies have seen their share prices rocket during the yearslong U.S. tech boom, then dip in the U.S. markets’ recent pullback.

That’s fueling Chinese officials’ fears that the depositary receipts will begin trading at high prices and then drop, hammering ordinary investors.

At the other extreme, interest in owning shares in choice companies—like e-commerce giants Alibaba and
JD.com Inc.,
and smartphone maker Xiaomi Corp.—is likely to be high. An initial low price could then soar, causing investors to pull money from other stocks and driving down share prices of other companies, according to the people familiar.

“We must find a balance,” one person said.

A task force comprised of officials from the China Securities Regulatory Commission and the exchanges are looking at everything from accounting rules to disclosure requirements, this person said. The commission wants to move forward quickly, the people said. Some investment bankers believe an Alibaba listing could come this summer.

Unlike in the U.S., the securities commission gets to decide which companies list. It regularly tinkers with the pace of approvals to nurture stable markets and tightly controls foreigners’ access.

The securities commission didn’t respond to a request for comment, nor did the Shanghai and Shenzhen stock exchanges.

Many of the tech firms that listed overseas did so because they were incorporated abroad, making them ineligible at the time to offer shares at home. But Chinese leaders recently allowed an exception. In March they approved a plan to allow foreign-listed companies specializing in innovative technologies—with at least 200 billion yuan ($31.8 billion) in market capitalization—to trade on mainland stock exchanges.

By using depositary receipts, the securities commission can create a separate set of new rules, instead of revising regulations that apply to all currently listed companies.

“It’s a breakthrough….in a regulatory structure that is not accommodating” to listings of foreign-incorporated companies yet,
Hong Kong Exchanges and Clearing Ltd.
Chief Executive Charles Li said Friday at D.Live, The Wall Street Journal’s tech conference.

Their combined market capitalization is 5.3 trillion yuan, in Citic’s estimate. Allowing them to list 5% of their overseas tradable capitalization is roughly the total amount raised in new public share offerings on the Shanghai and Shenzhen exchanges last year, Citic said.

That will give them outsize influence on the Chinese market, some analysts believe, just as U.S. exchanges are experiencing greater volatility.

“The timing isn’t appropriate,” Dong Dengxin, a Wuhan University of Science and Technology professor of finance, wrote on social media last month. “If the U.S. market crashes, [Chinese depositary receipts] will too.”

The depositary receipts wouldn’t be exchangeable with U.S. shares, limiting some risk. But officials are still concerned professional investors who can access both markets could make a windfall from a price gap.

Regulators have already fast-tracked a public-offering approval for one tech company and are eager to make it easier for more. That’s providing a tailwind for the depositary receipts. And it could stir up bad blood among the hundreds of domestic firms currently awaiting permission to list, one of the people familiar said.

“It’s a bit like the older son came back from a trip and the father is happy to see him,” said the person. “Meanwhile, the smaller son who never went away isn’t happy.”